UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2008Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period
from              to


Commission File Number: 0-06910



TEL OFFSHORE TRUST(Exact name of registrant as specified in its charter)

Texas(State or other jurisdiction
of incorporation or organization)

76-6004064(I.R.S. Employer Identification No.)The Bank of New York Mellon Trust
Company, N.A., Trustee
919 Congress Avenue
Austin, Texas(Address of principal executive offices)

78701(Zip Code)


(800) 852-1422(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in
Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller reporting company)

Smaller reporting company o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest
practicable date. As of November 12, 20084,751,510 Units of Beneficial Interest in TEL Offshore Trust.



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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-Q
are forward-looking statements. Although the Managing General Partner of the Partnership (as defined herein) has advised the Trust that the Managing General Partner believes that the expectations
reflected in the forward-looking statements contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Important factors that could cause actual
results to differ materially from expectations ("Cautionary Statements") are disclosed in this Form 10-Q, including, without limitation, in conjunction with the forward-looking
statements included in this Form 10-Q. A summary of certain principal risks and Cautionary Statements is also included in the Trust's Annual Report on Form 10-K
for the year ended December 31, 2007 under Part I, Item 1A. "Risk Factors." All subsequent written and oral forward-looking statements attributable to the Trust or persons acting
on its behalf are expressly qualified in their entirety by the Cautionary Statements.

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PART IFINANCIAL INFORMATION

Item 1.    Financial Statements.

TEL OFFSHORE TRUST  STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS        (Unaudited)

September 30,
2008

December 31,
2007AssetsCash and cash equivalents

$
7,619,161

$
5,136,437Net overriding royalty interest in oil and gas properties, net of accumulated amortization of $28,234,576 and $28,227,458, respectively


33,079


40,197Total assets

$
7,652,240

$
5,176,634Liabilities and Trust CorpusDistribution payable to Unit holders

$
5,470,387

$
3,252,711Reserve for future Trust expenses


2,148,774


1,883,726Trust corpus (4,751,510 Units of beneficial interest authorized and outstanding)


33,079


40,197Total liabilities and Trust corpus

$
7,652,240

$
5,176,634


STATEMENTS OF DISTRIBUTABLE INCOME        (Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Royalty income

$
5,627,452

$
2,924,013

$
13,445,963

$
6,856,218Interest income


9,469


22,596


29,658


58,8515,636,921


2,946,609


13,475,621


6,915,069Decrease/(Increase) in reserve for future Trust expenses


(12,596
)

58,959


(265,048
)

(292,341
)General and administrative expenses


(153,938
)

(168,672
)

(651,768
)

(564,325
)Distributable income

$
5,470,387

$
2,836,896

$
12,558,805

$
6,058,403Distributions per Unit (4,751,510 Units)

$
1.151294

$
0.597051

$
2.643119

$
1.275048


The
accompanying notes are an integral part of these financial statements.

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STATEMENTS OF CHANGES IN TRUST CORPUS        (Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Trust corpus, beginning of period

$
35,602

$
46,301

$
40,197

$
53,506Distributable income


5,470,387


2,836,896


12,558,805


6,058,403Distribution payable to Unit holders


5,470,387


2,836,896


12,558,805


6,058,403Amortization of net overriding royalty interest


(2,523
)

(3,302
)

(7,118
)

(10,507
)Trust corpus, end of period

$
33,079

$
42,999

$
33,079

$
42,999


The
accompanying notes are an integral part of these financial statements.

2

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TEL OFFSHORE TRUST  NOTES TO FINANCIAL STATEMENTS  (Unaudited)

Note 1Trust Organization

Tenneco Offshore Company, Inc. ("Tenneco Offshore") created the TEL Offshore Trust ("Trust") effective January 1, 1983,
pursuant to the Plan of Dissolution ("Plan") approved by Tenneco Offshore's stockholders on December 22, 1982. In accordance with the Plan, the TEL Offshore Trust Partnership ("Partnership")
was formed in which the Trust owns a 99.99% interest and Tenneco Oil Company ("Tenneco") initially owned a .01% interest. In general, the Plan was effected by transferring an overriding royalty
interest ("Royalty") equivalent to a 25% net profits interest in the oil and gas properties (the "Royalty Properties") of Tenneco Exploration, Ltd. ("Exploration I") located offshore Louisiana
to the Partnership and issuing certificates evidencing units of beneficial interest in the Trust ("Units") in liquidation and cancellation of Tenneco Offshore's common stock.

On
October 31, 1986, Exploration I was dissolved and the oil and gas properties of Exploration I were distributed to Tenneco subject to the Royalty. Tenneco, who was then serving
as the Managing General Partner of the Partnership, assumed the obligations of Exploration I, including its obligations under the instrument conveying the Royalty to the Partnership (the
"Conveyance"). The dissolution of Exploration I had no impact on future cash distributions to holders of Units.

On
November 18, 1988, Chevron U.S.A. Inc. ("Chevron") acquired most of the Gulf of Mexico offshore oil and gas properties of Tenneco, including all of the Royalty
Properties. As a result of the acquisition, Chevron replaced Tenneco as the Working Interest Owner and Managing General Partner of the Partnership. Chevron also assumed Tenneco's obligations under the
Conveyance.

On
October 30, 1992, PennzEnergy Company ("PennzEnergy") (which merged with and into Devon Energy Production Company L.P. effective January 1, 2000) acquired certain
oil and gas producing properties from Chevron, including four of the Royalty Properties. The four Royalty Properties acquired by PennzEnergy were East Cameron 354, Eugene Island 348, Eugene Island 367
and Eugene Island 208. As a result of such acquisition, PennzEnergy replaced Chevron as the Working Interest Owner of such properties on October 30, 1992. PennzEnergy also assumed Chevron's
obligations under the Conveyance with respect to these properties.

On
December 1, 1994, Texaco Exploration and Production Inc. ("TEPI") acquired two of the Royalty Properties from Chevron. The Royalty Properties acquired by Texaco were
West Cameron 643 and East Cameron 371. As a result of such acquisitions, TEPI replaced Chevron as the Working Interest Owner of such properties on December 1, 1994. TEPI also assumed Chevron's
obligations under the Conveyance with respect to these properties.

On
October 1, 1995, SONAT Exploration Company ("SONAT") acquired the East Cameron 354 property from PennzEnergy. In addition, on October 1, 1995, Amoco Production Company
("Amoco") acquired the Eugene Island 367 property from PennzEnergy. As a result of such acquisitions, SONAT and Amoco replaced PennzEnergy as the Working Interest Owners of the East Cameron 354 and
Eugene Island 367 properties, respectively, on October 1, 1995 and also assumed PennzEnergy's obligations under the Conveyance with respect to these properties.

Effective
January 1, 1998, Energy Resource Technology, Inc. ("ERT") acquired the East Cameron 354 property from SONAT. As a result of such acquisition, ERT replaced SONAT
as the Working

3

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Interest
Owner of the East Cameron 354 property effective January 1, 1998, and also assumed SONAT's obligations under the Conveyance with respect to such property. In October 1998, Amerada Hess
Corporation ("Amerada") acquired the East Cameron 354 property from ERT effective January 1, 1998. As a result of such acquisition, Amerada replaced ERT as the Working Interest Owner of the
East Cameron 354 property effective January 1, 1998, and also assumed ERT's obligations under the Conveyance with respect to this property.

Effective
January 1, 2000, PennzEnergy and Devon Energy Corporation (Nevada) merged into Devon Energy Production Company L.P. ("Devon"). As a result of such merger, Devon
replaced PennzEnergy as the Working Interest Owner of Eugene Island 348 and Eugene Island 208 properties effective January 1, 2000, and also assumed PennzEnergy's obligations under the
Conveyance with respect to these properties. The abandonment obligations for Eugene Island 348 have been assumed by Maritech Resources, Inc. effective January 1, 2005.

On
October 9, 2001, a wholly owned subsidiary of Chevron Corporation, a Delaware corporation, merged (the "Merger") with and into Texaco Inc., a Delaware corporation
("Texaco"), pursuant to an Agreement and Plan of Merger, dated as of October 15, 2000. As a result of the Merger, Texaco Inc. became a wholly owned subsidiary of Chevron Corporation, and
Chevron Corporation changed its name to "ChevronTexaco Corporation" in connection with the Merger. Effective May 9, 2005, ChevronTexaco Corporation changed its name to Chevron Corporation.
Accordingly, the properties referred to herein by Chevron and Texaco are each now controlled by subsidiaries of Chevron Corporation.

On
May 1, 2002, TEPI assigned all of its interests in West Cameron 643 and East Cameron 371 to Chevron. Chevron sold its interest in East Cameron 371 to Energy Resources
Technology, Inc., effective July 1, 2007. On July 18, 2008, Chevron sold its interest in West Cameron 643 to Hilcorp Energy GOM, LLC ("Hilcorp"). Effective August 1,
2008, Hilcorp assumed operations, reporting and payment responsibilities for West Cameron 643.

On
June 6, 2003, Anadarko Petroleum Corporation ("Anadarko") acquired, among other interests, a 25% Working Interest in the East Cameron 354 field subject to the Royalty from
Amerada effective April 1, 2003. As a result of this transaction, Anadarko replaced Amerada as the Working Interest Owner of East Cameron 354 effective July 1, 2003 and also assumed
Amerada's obligations under the conveyance with respect to this property.

Effective
October 1, 2004, Apache Corporation ("Apache") acquired Anadarko's interest in East Cameron 354 and assumed Anadarko's obligations under the conveyance with respect to
this property.

All
of the Royalty Properties continue to be subject to the Royalty, and it is anticipated that the Trust and the Partnership, in general, will continue to operate as if the
above-described sales of the Royalty Properties had not occurred. Chevron, as the Managing General Partner of the Partnership, calculates the Net Proceeds from the Royalty Properties owned by Chevron
and collects financial information relating to the other Royalty Properties from the Working Interest Owners other than Chevron for presentation to the Trust.

Unless
the context in which such terms are used indicates otherwise, in these Notes to Financial Statements the terms "Working Interest Owner" and "Working Interest Owners" generally
refer to the owner or owners of the Royalty Properties (Exploration I through October 31, 1986; Tenneco for periods from October 31, 1986 until November 18, 1988; Chevron with
respect to all Royalty Properties

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for
periods from November 18, 1988 until October 30, 1992, and with respect to all Royalty Properties except East Cameron 354, Eugene Island 348, Eugene Island 367 and Eugene Island 208
for periods from October 30, 1992 until December 1, 1994, and with respect to the same properties except West Cameron 643 thereafter; PennzEnergy/Devon with respect to East Cameron 354,
Eugene Island 348, Eugene Island 367 and Eugene/Devon Island 208 for periods from October 30, 1992 until October 1, 1995, and with respect to Eugene Island 348 and Eugene Island 208
thereafter; TEPI with respect to West Cameron 643 and East Cameron 371 for periods beginning on or after December 1, 1994 until May 1, 2002; SONAT with respect to East Cameron 354 for
periods beginning on or after October 1, 1995; Amoco with respect to Eugene Island 367 for periods beginning on or after October 1, 1995; Amerada with respect to East Cameron 354 for
periods beginning on or after January 1, 1998 until July 1, 2003; Chevron with respect to West Cameron 643 on and after May 1, 2002 until August 1, 2008; Chevron with
respect to East Cameron 371 on and after May 1, 2002 until July 1, 2007; Anadarko with respect to East Cameron 354 on and after July 1, 2003 until October 1, 2004; Apache
with respect to East Cameron 354 after October 1, 2004; Energy Resources Technology, Inc. with respect to East Cameron 371 on and after July 1, 2007; and Hilcorp with respect to
West Cameron 643 on and after August 1, 2008).

The
Trust is currently administered by The Bank of New York Mellon Trust Company, N.A. ("Corporate Trustee"), which succeeded JPMorgan Chase Bank, N.A. as the Corporate Trustee,
effective October 2, 2006 pursuant to an agreement under which The Bank of New York acquired substantially all of the Corporate Trust business of JPMorgan Chase (formerly known as The Chase
Manhattan Bank), and Daniel O. Conwill, IV, Gary C. Evans and Jeffrey S. Swanson ("Individual Trustees"), as trustees.

Note 2Basis of Accounting

The accompanying unaudited financial information has been prepared by the Corporate Trustee. The accompanying financial information is
prepared on a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America ("generally accepted accounting principles"). The Corporate Trustee
and the Individual Trustees
(collectively, the "Trustees") believe that the information furnished reflects all adjustments that are, in the opinion of the Trustees, necessary for a fair presentation of the results for the
interim periods presented. The financial information should be read in conjunction with the financial statements and notes thereto included in the Trust's Annual Report on Form 10-K
for the year ended December 31, 2007.

The
financial statements of the Trust are prepared on the following basis:



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This
manner of reporting income and expenses is considered to be the most meaningful because the quarterly distributions to Unit holders are based on net cash receipts received from the
Working Interest Owners. The financial statements of the Trust differ from financial statements prepared in accordance with generally accepted accounting principles, because, under such principles,
Royalty income and Trust general and administrative expenses for a quarter would be recognized on an accrual basis. In addition, amortization of the net overriding royalty interest, which is
calculated on a
units-of-production basis, is charged directly to Trust corpus since such amount does not affect distributable income.

On
the last business day of each calendar quarter, the Working Interest Owners pay to the Partnership 25% of the Net Proceeds for the immediately preceding Quarterly Period. A Quarterly
Period is each period of three months commencing on the first day of February, May, August and November. In turn, the Partnership distributes funds to its partners on the last business day of each
calendar quarter. Cash distributions from the Trust are made in January, April, July and October of each year, and are payable to Unit holders of record as of the last business day of each calendar
quarter. Thus, the cash conveyed to the Trust from the Royalty during the quarter ended September 30, 2008 substantially represents the revenues and expenses from the Royalty Properties from
May through July 2008. The financial and operating information included in this Form 10-Q for the three months ended September 30, 2008 represents financial and operating
information with respect to the Royalty Properties for the months of May, June and July 2008. Similarly, the financial and operating information included in this Form 10-Q for the nine months
ended September 30, 2008 represents financial and operating information with respect to the Royalty Properties for the months of November 2007 through July 2008. Income from the
Royalty is recorded by the Trust on a cash basis, when it is received by the Trust from the Partnership.

Cash
and cash equivalents include all highly liquid, short-term investments with original maturities of three months or less.

The
changes in reserve for future Trust expenses includes both changes of amounts deemed necessary by the Trustees and related distributions, as well as amounts paid from the reserve
during periods when the Trust has insufficient income to pay Trust expenses.

The
Trust reviews the net overriding royalty interest in oil and gas properties for possible impairment whenever events or circumstances indicate the carrying amount of the asset may not
be recoverable. If there is an indication of impairment, the Trust prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset
and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss may be recognized to write down the asset to the lower of its estimated fair value
or net book value. Preparation of estimated expected future cash flows is inherently subjective and is based on the Corporate Trustee's best estimate of assumptions concerning expected future
conditions. There were no write downs taken in the periods presented.

The
Special Cost Escrow account (Note 5) is established for the future costs to be incurred to plug and abandon wells, dismantle and remove platforms, pipelines and other
production facilities and for the estimated amount of future capital expenditures on the Royalty Properties. The funds held in the
Special Cost Escrow account are not reflected in the financial statements of the Trust. However, funds deposited to or released from the Special Cost Escrow account are included in Royalty income.

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The
preparation of financial statements requires the Trustees to make use of estimates and assumptions that affect amounts reported in the financial statements as well as certain
discounts. Actual results could differ from those estimates.

The
amount of cash distributions by the Trust is dependent on, among other things, the sales prices for oil and gas produced from the Royalty Properties and the quantities of oil and gas
sold. It should be noted that substantial uncertainties exist with regard to future oil and gas prices, which are subject to material fluctuations due to changes in production levels and pricing and
other actions taken by major petroleum producing nations, as well as the regional supply and demand for gas, weather, industrial growth, conservation measures, competition and other variables. The
Trust does not enter into any hedging transactions on future production.

Note 3Net Overriding Royalty Interest

The Royalty entitles the Trust to its share (99.99%) of 25% of the Net Proceeds attributable to the Royalty Properties. The Conveyance,
dated January 1, 1983, provides that the Working Interest Owners will calculate, for each period of three months commencing the first day of February, May, August and November, an amount equal
to 25% of the Net Proceeds from their oil and gas properties for the period. Generally, "Net Proceeds" means the amounts received by the Working Interest Owners from the sale of minerals from the
Royalty Properties less operating and capital costs incurred, management fees and expense reimbursements owing to the Managing General Partner of the Partnership, applicable taxes other than income
taxes, and a Special Cost Escrow account. The Special Cost Escrow account (See Note 5) is established for the future costs to be incurred to plug and abandon wells, dismantle and remove
platforms, pipelines and other production facilities, and for the estimated amount of future capital expenditures on the Royalty Properties. Net Proceeds do not include amounts received by the Working
Interest Owners as advance gas payments, "take-or-pay" payments or similar payments unless and until such payments are extinguished or repaid through the future delivery of
gas.

Note 4Distributions to Unit Holders

In accordance with the provisions of the Trust Agreement, generally all Net Proceeds received by the Trust, net of Trust general and
administrative expenses and any cash reserves established for the payment of contingent or future obligations of the Trust, are distributed currently to the Unit holders. Such distributions are
referred to as "distributable income." The amounts distributed are determined on a quarterly basis and are payable to Unit holders of record as of the last business day of each calendar quarter.
However, cash distributions are made in January, April, July and October and include interest earned from the quarterly record date to the date of distribution.

During
2005, Hurricane Katrina and Hurricane Rita caused significant damage to various platforms and third-party transportation systems, which resulted in oil and gas production delays
in our Royalty Properties. During 2006, several of the platforms and facilities on the Royalty Properties were restored, and by the third quarter of 2007 all but one of the platforms and facilities
had been restored. One of the platforms and facilities on Eugene Island was destroyed and has not been restored. Since those hurricanes, overall production slowly returned to normal production levels,
until production ceased at Eugene Island 339 and Ship Shoal 182 and 183 following damage inflicted by Hurricane Ike in September 2008. See Note 7. Future Net Proceeds may take into account the
Trust's share of project costs and other related expenditures that are not covered by insurance of the operator of the Royalty Properties. The extensive damage caused by hurricanes Katrina and Rita
led to significant demand for

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services
and supplies for repairs in the offshore Gulf of Mexico, which increased levels of expenditures. The reduced oil and gas production and increased costs reduced the cash income distributions
to unitholders significantly during 2006. During the fourth quarter 2006, the Trust resumed distributions. The fourth quarter distribution of $1.7 million was paid on January 11, 2007.
On March 30, 2007, the Trust announced its first quarter distribution of approximately $1.2 million. On June 27, 2007, the Trust announced its second quarter distribution of
approximately $2.1 million, which was paid on July 9, 2007. On September 27, 2007, the Trust announced its third quarter distribution of approximately $2.8 million, which
was paid on October 9, 2007. On December 21, 2007, the Trust announced its fourth quarter distribution of approximately $3.3 million, which was paid on January 10, 2008. On
March 26, 2008, the Trust announced its first quarter distribution of approximately $4.5 million, which was paid on April 10, 2008. On June 27, 2008, the Trust announced
its second quarter distribution of approximately $2.6 million, which was paid on July 10, 2008. On September 26, 2008, the Trust announced its third quarter distribution of
approximately $5.5 million, which was paid on October 10, 2008. However, future distributions are likely to be severely negatively impacted as a result of Hurricane Ike. See
Note 7.

Note 5Special Cost Escrow Account

The Special Cost Escrow is an account of the Working Interest Owners, and it is described herein for informational purposes only. The
Conveyance provides for the reserve of funds for estimated future "Special Costs" of plugging and abandoning wells, dismantling platforms and other costs of abandoning the Royalty Properties, as well
as for the estimated amount of future drilling projects and other capital expenditures on the Royalty Properties. As provided in the Conveyance, the amount of funds to be reserved is determined based
on certain factors, including estimates of aggregate future production costs, aggregate future Special Costs, aggregate future net revenues and actual current net profits interest. Deposits into this
account reduce current distributions and are placed in an escrow account and invested in short-term certificates of deposit. Such account is herein referred to as the "Special Cost Escrow"
account. The Trust's share of interest generated from the Special Cost Escrow account serves to reduce the Trust's share of allocated production costs. Special Cost Escrow funds will generally be
utilized to pay Special Costs to the extent there are not adequate current net profits interest to pay such costs. Special Costs that have been paid are no longer included in the Special Cost Escrow
calculation. Deposits to the Special Cost Escrow account will generally be made when the balance in the Special Cost Escrow account is less than 125% of estimated future Special Costs and there is a
Net Revenues Shortfall (a calculation of the excess of estimated future costs over estimated future net revenues pursuant to a formula contained in the Conveyance). When there is not a Net Revenues
Shortfall, amounts in the Special Cost Escrow account will generally be released, to the extent that Special Costs have been incurred. Amounts in the Special Cost Escrow account will also be released
when the balance in such account exceeds 125% of estimated future Special Costs. In the third quarter of 2008, there was a net release of funds from the Special Cost Escrow account of approximately
$1,017,783. As of September 30, 2008, the Trust's share of funds remaining in the Special Cost Escrow account was $4,335,777. The funds held in the Special Cost Escrow account are not reflected
in the financial statements of the Trust.

Chevron,
in its capacity as Managing General Partner of the Partnership, has advised the Trust that additional deposits to the Special Cost Escrow account may be required in future
periods in connection with other production costs, other abandonment costs, other capital expenditures and changes in the estimates and factors described above. Such deposits could result in a
significant reduction in Royalty

8

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income
in the periods in which such deposits are made, including the possibility that no Royalty income would be received in such periods.

Note 6Reserve For Future Trust Expenses

The Trust maintains a cash reserve equal to approximately three times the average expenses of the Trust during each of the past three
years to provide for future administrative expenses in connection with the winding up of the Trust. During the first nine months of 2008, the Trust increased its reserve by $265,048 for a reserve
balance of $2,148,774 as of September 30, 2008. The reserve amount at December 31, 2007 was $1,883,726.

Note 7Subsequent Events

Production from Eugene Island 339 and Ship Shoal 182 and 183, the two most significant Royalty Properties, ceased following damage
inflicted by Hurricane Ike in September 2008. The information contained in this Note regarding hurricane-related damages affecting the two oil and gas properties is based on information provided to
the Corporate Trustee by Chevron, the Managing General Partner of the Partnership.

The
platforms and wells on Eugene Island 339 were destroyed by Hurricane Ike. Crude oil revenues from Eugene Island 339 represented approximately 48% of the crude oil and condensate
revenues for the Royalty Properties in 2007 and for the third quarter in 2008. Eugene Island 339 contributed approximately 12% of the revenues from natural gas sales from the Royalty Properties in
2007 and approximately 45% of the revenues from natural gas sales in the third quarter of 2008. Chevron is assessing its alternatives and the economic feasibility for restoring production at the
property. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at Eugene Island 339. Generally, if production ceases from an outer continental
shelf lease, like that for Eugene Island 339, production must be restored or drilling operations must commence within 180 days of the cessation, or the lease will be terminated. A lease
operator may seek approval from the regional supervisor of the Mineral Management Service to allow additional time to restore production. There can be no assurance that production at Eugene Island 339
will be restored or that the lease operator will seek any such extension within such 180 day period, or if sought, such an extension would be granted.

While
Hurricane Ike caused limited surface damage to the facilities at Ship Shoal 182/183, all of the wells at Ship Shoal 182/183 were shut-in following hurricane-related
damage to a third-party transporter's natural gas pipeline. The more productive wells on the properties produce both oil and gas, and there is currently no downstream transmission available for any
gas produced from the
wells. Crude oil revenues from Ship Shoal 182/183 represented approximately 50% of the crude oil and condensate revenues for the Royalty Properties in 2007 and for the third quarter in 2008. Ship
Shoal 182/183 contributed approximately 77% of the revenues from natural gas sales from the Royalty Properties in 2007 and approximately 39% of the revenues from natural gas sales in the third quarter
of 2008. Each of Chevron and the natural gas transporter is assessing its alternatives and the economic feasibility for restoring pipeline transportation. At this point in time, there can be no
assurance as to how or when, or if at all, production may be restored at Ship Shoal 182/183.

Based
on the damage caused by Hurricane Ike, the Trust's scheduled distribution for the fourth quarter of 2008 is expected to be severely negatively impacted, and there may not be
sufficient Net Proceeds from the Royalty Properties to make any distribution. Future distributions are also likely to be severely negatively impacted. At this time, the ultimate outcome of these
various matters cannot be determined.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

Critical Accounting Policies

The financial statements of the Trust are prepared on the following basis:



This
manner of reporting income and expenses is considered to be the most meaningful because the quarterly distributions to Unit holders are based on net cash receipts received from the
Working Interest Owners. The financial statements of the Trust differ from financial statements prepared in accordance with generally accepted accounting principles, because, under such principles,
Royalty income and Trust general and administrative expenses for a quarter would be recognized on an accrual basis. In addition, amortization of the net overriding royalty interest, calculated on a
units-of-production basis, is charged directly to Trust corpus since such amount does not affect distributable income.

On
the last business day of each calendar quarter, the Working Interest Owners pay to the Partnership 25% of the Net Proceeds for the immediately preceding Quarterly Period. A Quarterly
Period is each period of three months commencing on the first day of February, May, August and November. In turn, the Partnership distributes funds to its partners on the last business day of each
calendar quarter. Cash distributions from the Trust are made in January, April, July and October of each year, and are payable to Unit holders of record as of the last business day of each calendar
quarter. Thus, the cash conveyed to the Trust from the Royalty during the quarter ended September 30, 2008 substantially represents the revenues and expenses from the Royalty Properties from
May through July 2008. The financial and operating information included in this Form 10-Q for the three months ended September 30, 2008 represents financial and operating
information with respect to the Royalty Properties for the months of May, June and July 2008. Similarly, the financial and operating information included in this Form 10-Q for the nine months
ended September 30, 2008 represents financial and operating information with respect to the Royalty Properties for the months of November 2007 through July 2008. Income from the
Royalty is recorded by the Trust on a cash basis, when it is received by the Trust from the Partnership.

The
Trustees, including the Corporate Trustee, have no authority over, have not evaluated and make no statement concerning, the internal control over financial reporting of the Working
Interest Owners.

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Financial Review

Three Months Ended September 30, 2008 and 2007

There were distributions of $5,470,387 or $1.151294 per Unit to the Unit holders for the three months ended September 30, 2008
as compared to distributions of $2,836,896 or $0.597051 per Unit to the Unit holders for the same period in 2007.

Crude
oil and condensate revenues increased $6,131,506, or 66%, to $15,441,978 in the third quarter of 2008 from $9,310,472 in the third quarter of 2007. The increase was a result of a
9% increase in crude oil and condensate volume to 149,125 barrels in the third quarter of 2008 from 137,016 barrels in the third quarter of 2007 due to higher production volume, and a 52% increase in
the average price of crude oil and condensate to $103.55 per barrel in the third quarter of 2008 from $67.95 per barrel in the third quarter of 2007.

Gas
revenues increased $1,689,456, or 71%, to $4,081,548 in the third quarter of 2008 from $2,392,092 in the third quarter of 2007, due primarily to an increase in the average price
received for natural gas from $7.78 per Mcf in the third quarter of 2007 to $12.46 per Mcf in the third quarter of 2008. Gas volumes increased 7% to 327,690 Mcf in the third quarter of 2008 from
307,288 Mcf in the third quarter of 2007. Gas products revenue increased to $1,255,531 in the third quarter of 2008 from $221,384 in the third quarter of 2007, primarily due to an increase in
production volumes to 877,148 gallons in the third quarter of 2008, of which 223,130 gallons booked related to prior period adjustments for 2004 through 2007, from 208,868 gallons in the third quarter
of 2007.

Capital
expenditures increased $19,956, from $213,168 in the third quarter of 2007 to $233,124 in the third quarter of 2008. The capital expenditures for the third quarter of 2008
related primarily to field workovers to help improve production performance. The capital expenditures for the third quarter of 2007 related primarily to damages caused by Hurricanes Rita and Katrina.

The
Royalty Properties received previously undistributed net income of $28,484 as of September 30, 2008.

In
the third quarter of 2008, there was a net release of funds from the Special Cost Escrow account. The Trust's share of the net funds released was $1,017,783. As of
September 30, 2008, the Trust's share of funds remaining in the Special Cost Escrow account was $4,335,777. The Special Cost Escrow is set aside for estimated abandonment costs and future
capital expenditures, as provided for in the Conveyance. For additional information relating to the Special Cost Escrow, see "Special Cost Escrow Account" below.

In
the third quarter of 2007, there was a net release of funds from the Special Cost Escrow account. The Trust's share of the net funds released was $454,995.

Production
from Eugene Island 339 and Ship Shoal 182 and 183, the two most significant Royalty Properties, ceased following damage inflicted by Hurricane Ike in September 2008. The
platforms and wells on Eugene Island 339 were destroyed by Hurricane Ike. Chevron is assessing its alternatives and the economic feasibility for restoring production at the property. At this point in
time, there can be no assurance as to how or when, or if at all, production may be restored at Eugene Island 339. While Hurricane Ike caused limited surface damage to the facilities at Ship Shoal
182/183, all of the wells at Ship Shoal 182/183 were shut-in following hurricane-related damage to a third-party transporter's natural gas pipeline. Each of Chevron and the natural gas
transporter is assessing its alternatives and

11

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the
economic feasibility for restoring pipeline transportation. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at Ship Shoal 182/183. See
"Operational Review."

Nine Months Ended September 30, 2008 and 2007

There were distributions of $12,558,805 or $2.643119 per Unit to the Unit holders for the nine months ended September 30, 2008
as compared to distributions of $6,058,403 or $1.275048 per Unit to the Unit holders for the same period in 2007.

Crude
oil and condensate revenues increased $10,611,417, or 39%, to $37,485,063 in the first nine months of 2008 from $26,873,646 for the same period in 2007, due to a 57% increase in
the average price of crude oil and condensate to $97.19 per barrel in the first nine months of 2008 from $62.06 per barrel in the first nine months of 2007. This increase was partially offset by an
11% decrease in crude oil and condensate volume to 385,687 barrels from 433,006 barrels, respectively, during these periods.

Gas
revenues increased $3,193,276, or 44%, to $10,389,374 in the first nine months of 2008 from $7,196,098 for the same period in 2007, due to an increase in gas volumes of 17% to
1,134,953 Mcf in the first nine months of 2008 from 968,347 Mcf for the same period in 2007 and a 24% increase in the average price received for natural gas to $9.24 per Mcf in the first nine months
of 2008 from $7.43 per Mcf in the same period of 2007. Gas products revenue increased $2,523,817 or 487%, to $3,041,718 in the first nine months of 2008 from $517,901 in the same period of 2007,
primarily due to an increase in production volume of 1,676,119 gallons, or 304%, to 2,226,669 gallons in the first nine months of 2008 from 550,550 gallons in the same period of 2007.

The
decrease in crude oil and condensate volumes for the first nine months of 2008 was related in part to a three day field shut-in for repairs at Eugene Island 339 and to an
entire production shut-in at Ship Shoal 182/183, platforms C and E, due to pipeline obstruction.

Increases
in gas volumes and gas products production volumes resulted from Eugene Island 339 and East Cameron 643 coming back on-line during July 2007 after hurricane damages
were repaired.

The
Trust's share of capital expenditures decreased $1,268,940, from $1,387,892 in the first nine months of 2007 to $118,952 in the same period of 2008. The higher amount of capital
expenditures for the first nine months of 2007 related primarily to damages caused by Hurricanes Rita and Katrina. Reflected within the capital expenditures line item for 2008 is a refund of $495,000
from the Working Interest Owners for certain prior period capital expenditures. The refund of prior period capital expenditures resulted from the review procedures performed by an outside auditor as
further described below.

The
Royalty Properties had an increase in undistributed net income of $59,631 as of 2008.

In
the first nine months of 2008, there was a net release of funds from the Special Cost Escrow account. The Trust's share of the net funds released was $2,377,787. In the first nine
months of 2007, there was a net deposit of funds into the Special Cost Escrow account. The Trust's share of the net funds deposited was $47,918. As of September 30, 2008, $4,335,777 remained in
the Special Cost Escrow account. The Special Cost Escrow is set aside for estimated abandonment costs and future capital expenditures, as provided for in the Conveyance. For additional information
relating to the Special Cost Escrow, see "Special Cost Escrow Account" below.

12

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As
described above, production from Eugene Island 339 and Ship Shoal 182 and 183, the two most significant Royalty Properties, ceased following damage inflicted by Hurricane Ike in
September 2008. The platforms and wells on Eugene Island 339 were destroyed by Hurricane Ike. Chevron is assessing its alternatives and the economic feasibility for restoring production at the
property. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at Eugene Island 339. While Hurricane Ike caused limited surface damage to the
facilities at Ship Shoal 182/183, all of the wells at Ship Shoal 182/183 were shut-in following hurricane-related damage to a third-party transporter's natural gas pipeline. Each of
Chevron and the natural gas transporter is assessing its alternatives and the economic feasibility for restoring pipeline transportation. At this point in time, there can be no assurance as to how or
when, or if at all, production may be restored at Ship Shoal 182/183. See "Operational Review."

Reserve for Future Trust Expenses

In accordance with the provisions of the Trust Agreement, generally all Royalty income received by the Trust, net of Trust general and
administrative expenses and any cash reserves established for the payment of contingent or future obligations of the Trust, are distributed currently to the Unit holders. The Trust has previously
determined that a cash reserve equal to approximately three times the average expenses of the Trust during each of the past three years was sufficient to provide for future administrative expenses in
connection with the winding up of the Trust.
During the nine months ended September 30, 2008, the Trust increased its reserve by $265,048 for a reserve balance of $2,148,774 at September 30, 2008. The reserve amount at
December 31, 2007 was $1,883,726.

Other

The amount of cash distributed by the Trust is dependent on, among other things, the sales prices and quantities of oil and gas
produced from the Royalty Properties as well as capital expenditures by the Working Interest Owners that may or may not be included in the Special Cost Escrow account. It should be noted that
substantial uncertainties exist with regard to future oil and gas prices, which are subject to material fluctuations due to changes in production levels and pricing and other actions taken by major
petroleum producing nations, as well as the regional supply and demand for oil and gas, weather, industrial growth, conservation measures, competition and other variables.

Operational Review

At the end of October 2005, approximately half of Chevron oil-equivalent production in the Gulf of Mexico remained
shut-in due to damages from hurricanes in the third quarter. During 2006, several of the platforms and facilities on the Royalty Properties were restored, and by the third quarter of 2007
all but one of the platforms and facilities had been restored. On West Cameron 643, production was shut in from September 2005 following Hurricane Rita's major damage to various platforms, but limited
gas production resumed in late July 2006 before the wells loaded up and additional repairs were required thus requiring the well to be shut in again during the second quarter 2006. Production at West
Cameron 643 resumed May 2007.

One
of the platforms and facilities on Eugene Island was destroyed from hurricanes in the third quarter of 2005 and has not been restored. Eugene Island 339 oil production increased
during the second half of 2006 and the first quarter of 2007 as the B-5 well gas injection project, which allows the operator to increase oil production and to limit flaring of gas, was
completed. However, the platforms

13

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and
wells on Eugene Island 339 were destroyed by Hurricane Ike in September 2008. Crude oil revenues from Eugene Island 339 represented approximately 48% of the crude oil and condensate revenues for
the Royalty Properties in 2007 and for the third quarter in 2008. Eugene Island 339 contributed approximately 12% of the revenues from natural gas sales from the Royalty Properties in 2007 and
approximately 45% of the revenues from natural gas sales in the third quarter of 2008. Chevron is assessing its alternatives and the economic feasibility for restoring production at the property. At
this point in time, there can be no assurance as to how or when, or if at all, production may be restored at Eugene Island 339. Generally, if production ceases from an outer continental shelf lease,
like that for Eugene Island 339, production must be restored or drilling operations must commence within 180 days of the cessation, or the lease will be terminated. A lease operator may seek
approval from the regional supervisor of the Mineral Management Service to allow additional time to restore production. There can be no assurance that production at Eugene Island 339 will be restored
or that the lease operator will seek any such extension within such 180 day period, or if sought, such an extension would be granted.

On
Ship Shoal 182/183, gas production and sales resumed in July 2006 following the hurricanes in the third quarter of 2005, and full production resumed in the fourth quarter of 2006.
However, production ceased following damage inflicted by Hurricane Ike in September 2008. While Hurricane Ike caused limited surface damage to the facilities at Ship Shoal 182/183, all of the wells at
Ship Shoal 182/183 were shut-in following hurricane-related damage to a third-party transporter's natural gas pipeline. The more productive wells on the properties produce both oil and
gas, and there is currently no downstream transmission available for any gas produced from the wells. Crude oil revenues from Ship Shoal 182/183 represented approximately 50% of the crude oil and
condensate revenues for the Royalty Properties in 2007 and for the third quarter in 2008. Ship Shoal 182/183 contributed approximately 77% of the revenues from natural gas sales from the Royalty
Properties in 2007 and approximately 39% of the revenues from natural gas sales in the third quarter of 2008. Each of Chevron and the natural gas transporter is assessing its alternatives and the
economic feasibility for restoring pipeline transportation. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at Ship Shoal 182/183.

The
Trust has engaged an outside auditor for the purpose of reviewing the books and records of certain Working Interest Owners with respect to the Royalty Properties and the related
payments to the Trust. Based on the initial report of this auditor, the Trustees believe that certain errors have occurred and are involved in ongoing discussions with such Working Interest Owners to
resolve these items. As part of this process, certain adjustments resulted in an additional cash distribution to the Trust during the
first quarter of 2008. These amounts are comprised of a one-time increase of approximately $31,716 in gas revenues, a one-time increase of approximately $43,287 in oil
revenues, and a one-time credit of approximately $123,900 in capital expenditures. An additional $127,973 related to the outside audit was included in the second quarter 2008 distribution.
An additional $135,551 related to the outside audit was included in the third quarter 2008 distribution. No assurance can be provided as to the ultimate outcome of the remaining items under
discussion.

Three Months Ended September 30, 2008 and 2007

The following operational information has been based on information provided to the Corporate Trustee by Chevron as the Managing
General Partner of the Partnership and by the applicable Working Interest Owners. The Trustees have no control over these operations or internal controls relating to this information.

14

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Volumes and dollar amounts discussed below represent amounts recorded by the Working Interest Owners unless otherwise specified.

Ship
Shoal 182/183 crude oil revenues increased from $4,744,516 in the third quarter of 2007 to $7,838,993 in the third quarter of 2008, due to an increase in the average crude oil price
from $69.12 per barrel in the third quarter of 2007 to $123.87 per barrel for the same period in 2008. The increase was partially offset by a decrease in net crude oil production from 68,640 barrels
in the third quarter of 2007 to 63,286 barrels in the third quarter of 2008. The decrease in volumes is primarily related to normal production decline. Gas revenues decreased from $1,968,734 in the
third quarter of 2007 to $1,613,142 in the third quarter of 2008, primarily due to a decrease in gas volumes from 249,347 Mcf in the third quarter of 2007 to 140,738 Mcf in the third quarter of 2008.
This decrease was partially offset by an increase in the natural gas sales price from $7.90 per Mcf in the third quarter of 2007 to $11.46 per Mcf in the third quarter of 2008. The decrease in volumes
is primarily related to normal production decline. Capital expenditures decreased from $97,197 in the third quarter of 2007 to $10,532 in the third quarter of 2008. No significant projects occurred
during the third quarter of 2008. Operating expenses decreased from $695,209 in the third quarter of 2007 to $471,151 for the same period in 2008 due to a decrease in production volumes.

Production
from Ship Shoal 182 and 183 ceased following damage inflicted by Hurricane Ike in September 2008. While Hurricane Ike caused limited surface damage to the facilities at Ship
Shoal 182/183, all of the wells at Ship Shoal 182/183 were shut-in following hurricane-related damage to a third-party transporter's natural gas pipeline. Each of Chevron and the natural
gas transporter is assessing its alternatives and the economic feasibility for restoring pipeline transportation. At this point in time, there can be no assurance as to how or when, or if at all,
production may be restored at Ship Shoal 182/183. See "Operational Review."

Eugene
Island 339 crude oil revenues increased from $4,398,230 in the third quarter of 2007 to $7,386,151 in the third quarter of 2008. There was an increase in crude oil production from
65,891 barrels in the third quarter of 2007 to 84,061 barrels in the third quarter of 2008 primarily as a result of a 23,845 barrel volume adjustment as a result of an external audit. There was also
an increase in the average price of crude oil from $66.75 per barrel in the third quarter of 2007 to $87.87 in the third quarter of 2008. Gas revenues were $111,087 in the third quarter of 2007 and
$1,861,437 in the third quarter 2008 mostly related to higher volumes in the third quarter of 2008 as compared to the third quarter of 2007. Repair of damages caused by Hurricanes Rita and Katrina
caused gas production to increase from 16,360 Mcf in the third quarter of 2007 to 132,829 Mcf in the third quarter 2008. Capital expenditures increased from $52,909 in the third quarter of 2007 to
$186,687 in the third quarter of 2008, primarily due to repairs associated with the conversion to a water injector. Operating expenses increased from $653,172 in the third quarter of 2007 to $915,360
for the same period in 2008, mostly due to workover expenses and an adjustment to correct costs from November 2006 and January 2007.

Production
from Eugene Island 339 ceased following damage inflicted by Hurricane Ike in September 2008, as the platforms and wells on Eugene Island 339 were destroyed. Chevron is
assessing its alternatives and the economic feasibility for restoring production at the property. At this point in time, there can be no assurance if production will be restored at Eugene Island 339.
See "Operational Review."

West
Cameron 643 gas revenues increased from $264,332 in the third quarter of 2007 to $567,061 in the third quarter 2008 due mostly to higher gas prices. Following the repair of damage
caused by Hurricanes Rita and Katrina, gas production increased from 35,389 Mcf in the third quarter of 2007 to 50,351 Mcf in the third quarter of 2008. Operating expenses decreased from $262,763 in
the third quarter of 2007 to $152,594 for the same period in 2008. Capital expenditures were $0 in the third quarter of 2007 and $7,884 in the third quarter of 2008.

15

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Nine Months Ended September 30, 2008 and 2007

Volumes and dollar amounts discussed below represent amounts recorded by the Working Interest Owners unless
otherwise specified.

Ship
Shoal 182/183 crude oil revenues increased from $13,421,822 in the first nine months of 2007 to $19,206,631 in the first nine months of 2008, due to an increase in the average crude
oil price from $64.35 per barrel in the first nine months of 2007 to $104.70 per barrel for the same period in 2008. The increase was partially offset by a decrease in crude oil production from
208,562 barrels in the first nine months of 2007 to 183,449 barrels in the first nine months of 2008. This production decline is related in part to a three day field shut-in for repairs at
Ship Shoal 182/183. Gas revenues decreased from $6,453,632 in the first nine months of 2007 to $4,227,427 in first nine months of 2008 primarily due to a decrease in gas volumes from 854,183 Mcf in
the first nine months of 2007 to 477,435 Mcf for the same period in 2008. This decrease in gas volumes was due to a shut-in as a result of an obstructed pipeline and the natural decline of
production. The average natural gas sales price increased from $7.43 per Mcf in the first nine months of 2007 to $9.24 in the first nine months of 2008. Capital expenditures decreased from $675,220 in
the first nine months of 2007 to ($455,967) in the same period of 2008, primarily due to an audit adjustment for prior periods. Operating expenses decreased from $2,547,168 for the first nine months
of 2007 to $1,982,544 for the first nine months of 2008, due to a decrease in production.

Production
from Ship Shoal 182 and 183 ceased following damage inflicted by Hurricane Ike in September 2008. While Hurricane Ike caused limited surface damage to the facilities at Ship
Shoal 182/183, all of the wells at Ship Shoal 182/183 were shut-in following hurricane-related damage to a third-party transporter's natural gas pipeline. Each of Chevron and the natural
gas transporter is assessing its alternatives and the economic feasibility for restoring pipeline transportation. At this point in time, there can be no assurance as to how or when, or if at all,
production may be restored at Ship Shoal 182/183. See "Operational Review."

Eugene
Island 339 crude oil revenues increased from $13,004,475 in the first nine months of 2007 to $17,668,951 in the first nine months of 2008, due to an increase in the average crude
oil price from
$59.87 per barrel in the first nine months of 2007 to $90.32 per barrel in the first nine months of 2008. The increase was partially offset by a decrease in volumes from 217,197 barrels in the first
nine months of 2007 to 195,633 barrels in the first nine months of 2008. This production decline is primarily related to a three day field shut-in for repairs at Eugene Island 339. Gas
revenues increased from $111,087 in the first nine months of 2007 to $4,322,543 in the first nine months of 2008, primarily due to a increase in production from 16,360 Mcf for the first nine months of
2007 to 448,921 Mcf for the same period in 2008. The increase is a result of production coming back online after the completion of a third-party gas pipeline connection in July 2007. Capital
expenditures increased from $182,651 in the first nine months of 2007 to $477,067 in the first nine months of 2008 due to the conversion to a water injector. Operating expenses increased from
$1,540,940 for the first nine months of 2007 to $2,379,294 for the first nine months of 2008, primarily due to increased production.

Production
from Eugene Island 339 ceased following damage inflicted by Hurricane Ike in September 2008, as the platforms and wells on Eugene Island 339 were destroyed. Chevron is
assessing its alternatives and the economic feasibility for restoring production at the property. At this point in time, there can be no assurance if production may will restored at Eugene Island 339.
See "Operational Review."

16

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West
Cameron 643 gas revenues increased from $483,549 in the first nine months of 2007 to $1,488,686 in the first nine months of 2008 due to an increase in gas volumes from 77,482 Mcf in
the first nine months of 2007 to 171,963 Mcf for the same period in 2008. Operating expenses decreased from $788,183 in the first nine months of 2007 to $501,017 for the first nine months of 2008.
Capital expenditures increased from $0 in the first nine months of 2007 to $7,884 in the first nine months of 2008.

Liquidity and Capital Resources

Production from Eugene Island 339 and Ship Shoal 182 and 183, the two most significant Royalty Properties, ceased following damage
inflicted by Hurricane Ike in September 2008. The platforms and wells on Eugene Island 339 were destroyed by Hurricane Ike. Chevron is assessing its alternatives and the economic feasibility for
restoring production at the property. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at
Eugene Island 339. While Hurricane Ike caused limited surface damage to the facilities at Ship Shoal 182/183, all of the wells at Ship Shoal 182/183 were shut-in following
hurricane-related damage to a third-party transporter's natural gas pipeline. Each of Chevron and the natural gas transporter is assessing its alternatives and the economic feasibility for restoring
pipeline transportation. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at Ship Shoal 182/183. See "Operational Review."

Based
on the damage caused by Hurricane Ike, the Trust's scheduled distribution for the fourth quarter of 2008 is expected to be severely negatively impacted, and there may not be
sufficient Net Proceeds from the Royalty Properties to make any distribution. Future distributions are also likely to be severely negatively impacted. At this time, the ultimate outcome of these
various matters cannot be determined.

Future Net Revenues and Termination of the Trust

Based on a reserve study provided to the Trust by DeGolyer and MacNaughton, independent petroleum engineers, as of October 31,
2007 future net revenues attributable to the Trust's royalty interests were estimated at $54.8 million. Estimates of proved oil and gas reserves attributable to the Partnership's royalty
interest are based on existing economic and operating conditions in effect at October 31, 2007 in order to correspond with distributions to the Trust. Such reserve study also indicates that
approximately 76% of the future net revenues from the Royalty Properties are expected to be received by the Trust during the next three years. Upon termination of the Trust, the Trustees will sell for
cash all of the assets held in the Trust estate and make a final distribution to Unit holders of any funds remaining after all Trust liabilities have been satisfied. The estimates of future net
revenues discussed above are subject to large variances from year to year and should not be construed as exact. There are numerous uncertainties present in estimating future net revenues for the
Royalty Properties. The estimate may vary depending on changes in market prices for crude oil and natural gas, the recoverable reserves, annual production and costs assumed by DeGolyer and
MacNaughton. Future economic and operating conditions as well as results of future drilling plans may cause significant changes in such estimate. In addition, because the Trust will terminate in the
event estimated future net revenues fall below $2.0 million, it would be possible for the Trust to terminate even though some or all of the Royalty Properties continued to have remaining
productive lives. The discussion set forth above is qualified in its entirety by reference to the Trust's Annual Report on Form 10-K for the year

17

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ended
December 31, 2007. The Trust's Form 10-K is available at the website of the Securities and Exchange Commission ("SEC") at www.sec.govor upon request from the Corporate Trustee.

Special Cost Escrow Account

The Conveyance provides for reserving funds for estimated future "Special Costs" of plugging and abandoning wells, dismantling
platforms and other costs of abandoning the Royalty Properties, as well as for the estimated amount of future drilling projects and other capital expenditures on the Royalty Properties. As provided in
the Conveyance, the amount of funds to be reserved is determined based on factors including estimates of aggregate future production costs, aggregate future Special Costs, aggregate future net
revenues and actual current net proceeds. Deposits into this account reduce current distributions and are placed in an escrow account and invested in short-term certificates of deposit.
Such account is herein referred to as the "Special Cost Escrow" account. The Trust's share of interest generated from the Special Cost Escrow account serves to reduce the Trust's share of allocated
production costs.

Special
Cost Escrow funds will generally be utilized to pay Special Costs to the extent there are not adequate current net proceeds to pay such costs. Special Costs that have been paid
are no longer included in the Special Cost Escrow calculation. Deposits to the Special Cost Escrow account will generally be made when the balance in the Special Cost Escrow account is less than 125%
of estimated future Special Costs and there is a Net Revenues Shortfall (a calculation of the excess of estimated future costs over estimated future net revenues pursuant to a formula contained in the
Conveyance). When there is not a Net Revenues Shortfall, amounts in the Special Cost Escrow account will generally be released, to the extent that Special Costs have been incurred. Amounts in the
Special Cost Escrow account will also be released when the balance in such account exceeds 125% of estimated future Special Costs. In the first nine months of 2008, there was a net release of funds
from the Special Cost Escrow account of $2,377,787. In the first nine months of 2007, there was a net deposit of funds to the Special Cost Escrow account of $47,918.

As
of September 30, 2008, $4,335,777 remained in the Special Cost Escrow account.

Chevron,
in its capacity as Managing General Partner of the Partnership, has advised the Trust that additional deposits to the Special Cost Escrow account may be required in future
periods in connection with other production costs, other abandonment costs, other capital expenditures and changes in the estimates and factors described above. Such deposits could result in a
significant reduction in Royalty income in the periods in which such deposits are made, including the possibility that no Royalty income would be received in such periods.

18

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Overview of Production, Prices and Royalty Income

The following schedule provides a summary of the volumes and weighted average prices for crude oil and condensate and natural gas
recorded by the Working Interest Owners for the Royalty Properties, as well as the Working Interest Owners' calculations of the Net Proceeds and the royalties paid to the Trust during the periods
indicated. Net Proceeds due to the Trust are calculated for each three month period commencing on the first day of February, May, August and November.

Royalty Properties Three Months
Ended September 30,2008

2007Crude oil and condensate (bbls)


149,125


137,016Natural gas and gas products (Mcfe)


452,997


337,127Crude oil and condensate average price, per bbl

$
103.55

$
67.95Natural gas average price, per Mcf (excluding gas products)

$
12.46

$
7.78Crude oil and condensate revenues

$
15,441,978

$
9,310,472Natural gas and gas products revenues


5,337,079


2,613,476Production expenses


(2,259,332
)

(2,070,514
)Capital expenditures


(233,124
)

(213,168
)Undistributed Net Incomecollection of (increase in)(1)


28,484


24,114Refund Of/(Provision for) Special Cost Escrow


4,196,975


2,032,842Net Proceeds


22,512,060


11,697,222Royalty interest


x25
%

x25
%Partnership share


5,628,015


2,924,305Trust interest


x99.99
%

x99.99
%Trust share of Royalty Income

$
5,627,452

$
2,924,013


---

19

---



Royalty Properties Nine Months
Ended September 30,2008

2007Crude oil and condensate (bbls)


385,687


433,006Natural gas and gas products (Mcfe)


1,453,048


1,046,997Crude oil and condensate average price, per bbl

$
97.19

$
62.06Natural gas average price, per Mcf (excluding gas products)

$
9.24

$
7.43Crude oil and condensate revenues

$
37,485,063

$
26,873,646Natural gas and gas products revenues


13,431,092


7,713,999Production expenses


(6,995,347
)

(6,242,463
)Capital expenditures


(118,952
)

(1,387,892
)Undistributed Net Incomecollection of (increase in)(1)


(59,631
)

24,114Refund of/(Provision for) Special Cost Escrow


10,047,007


448,302Net Proceeds


53,789,232


27,429,706Royalty interest


x25
%

x25
%Partnership share


13,447,308


6,857,426Trust interest


x99.99
%

x99.99
%Trust share of Royalty Income

$
13,445,963

$
6,856,741


---

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

No material changes have occurred since our Annual Report on Form 10-K for the year ended December 31, 2007.
Reference is also made to Note 2 of the Notes to Financial Statements included in Part I, Item 1 of this Form 10-Q.

Item 4T. Controls and Procedures.

Evaluation of disclosure controls and procedures.The Corporate Trustee maintains disclosure controls and procedures designed to ensure that information required
to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by the Trust in the reports that it files or submits under the Exchange Act is accumulated and communicated by Chevron, as the Managing General Partner of the Partnership, and the Working
Interest Owners to The Bank of New York Mellon Trust Company, N.A., as Corporate Trustee of the Trust, and its employees who participate in the preparation of the Trust's periodic
reports as appropriate to allow timely decisions regarding required disclosure.

20

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As
of the end of the period covered by this report, the Corporate Trustee carried out an evaluation of the Trust's disclosure controls and procedures. Mike Ulrich, as Trust Officer of
the Corporate Trustee, has concluded that the disclosure controls and procedures of the Trust are effective.

Due
to the contractual arrangements of (i) the Trust Agreement, (ii) the Partnership Agreement and (iii) the rights of the Partnership under the Conveyance regarding
information furnished by the Working Interest Owners, the Trustees rely on (A) information provided by the Working Interest Owners, including historical operating data, plans for future
operating and capital expenditures, reserve information and information relating to projected production, (B) information from the Managing General Partner of the Partnership, including
information that is collected from the Working Interest Owners, and (C) conclusions and reports regarding reserves by the Trust's independent reserve engineers. See Part I,
Item 1A. "Risk FactorsThe Trustees and the Unit holders have no control over the operation or development of the Royalty Properties and have little influence over operation or
development" and "The Trustees rely upon the working interest owners and managing general partner for information regarding the Royalty Properties" in the Trust's Annual
Report on Form 10-K for the year ended December 31, 2007, and "Note 5Negative Adjustments" of the financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" relating to operating information on East Cameron 371 included in the Annual Report on Form 10-K for the year ended
December 31, 2007 for a description of certain risks relating to these arrangements and reliance and applicable adjustments to operating information when reported by the Working Interest Owners
to the Corporate Trustee and recorded in the Trust's results of operations.

Changes in Internal Control Over Financial Reporting.During the three months ended September 30, 2008, there has been no change in the Corporate Trustee's
internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Corporate Trustee's internal control over financial reporting relating to the
Trust. The Corporate Trustee notes for purposes of clarification that it has no authority over, and makes no statement concerning, the internal control over financial reporting of the Working Interest
Owners or the Managing General Partner of the Partnership.

21

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PART IIOTHER INFORMATION

Item 1A.    Risk Factors.

Except as set forth below, there have not been any material changes from risk factors previously disclosed in the Trust's response to
Item 1A to Part I of the Trust's Annual Report on Form 10-K for the year ended December 31, 2007.

Production from Eugene Island 339 and Ship Shoal 182 and 183, the two most significant Royalty Properties, ceased following damage inflicted by Hurricane Ike in
September 2008. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at either of the oil and gas properties. Based on the damage caused by
Hurricane Ike, the Trust's scheduled distribution for the fourth quarter of 2008 is expected to be severely negatively impacted, and there may not be sufficient Net Proceeds from the Royalty
Properties to make any distribution. Future distributions are also likely to be severely negatively impacted.

The
platforms and wells on Eugene Island 339 were destroyed by Hurricane Ike in September 2008. Chevron is assessing its alternatives and the economic feasibility for restoring
production at the property. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at Eugene Island 339. While Hurricane Ike caused limited
surface damage to the
facilities at Ship Shoal 182/183, all of the wells at Ship Shoal 182/183 were shut-in following hurricane-related damage to a third-party transporter's natural gas pipeline. Each of
Chevron and the natural gas transporter is assessing its alternatives and the economic feasibility for restoring pipeline transportation. Based on the damage caused by Hurricane Ike, the Trust's
scheduled distribution for the fourth quarter of 2008 is expected to be severely negatively impacted, and there may not be sufficient Net Proceeds from the Royalty Properties to make any distribution.
Future distributions are also likely to be severely negatively impacted. At this time, the ultimate outcome of these various matters cannot be determined. For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of OperationsOperational Review."

22

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Item 6.    Exhibits.

(Asterisk indicates exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference.)

SEC File or Registration Number

Exhibit Number4
(a)*


Trust Agreement dated as of January 1, 1983, among Tenneco Offshore Company, Inc., Texas Commerce Bank National Association, as corporate trustee, and Horace C. Bailey, Joseph C. Broadus and F. Arnold Daum,
 as individual trustees (Exhibit 4(a) to Form 10-K for the year ended December 31, 1992 of TEL Offshore Trust)


0-06910


4
(a)4
(b)*


Agreement of General Partnership of TEL Offshore Trust Partnership between Tenneco Oil Company and the TEL Offshore Trust, dated January 1, 1983 (Exhibit 4(b) to Form 10-K for year ended December 31,
1992 of TEL Offshore Trust)


0-06910


4
(b)4
(c)*


Conveyance of Overriding Royalty Interests from Exploration I to the Partnership (Exhibit 4(c) to Form 10-K for year ended December 31, 1992 of TEL Offshore Trust)


0-06910


4
(c)4
(d)*


Amendments to TEL Offshore Trust Agreement, dated December 7, 1984 (Exhibit 4(d) to Form 10-K for year ended December 31, 1992 of TEL Offshore Trust)


0-06910


4
(d)4
(e)*


Amendment to the Agreement of General Partnership of TEL Offshore Trust Partnership, effective as of January 1, 1983 (Exhibit 4(e) to Form 10-K for the year ended December 31, 1992 of
TEL Offshore Trust)


0-06910


4
(e)10
(a)*


Purchase Agreement, dated as of December 7, 1984 by and between Tenneco Oil Company and Tenneco Offshore II Company (Exhibit 10(a) to Form 10-K for year ended December 31, 1992 of TEL Offshore
Trust)


0-06910


10
(a)10
(b)*


Consent Agreement, dated November 16, 1988, between TEL Offshore Trust and Tenneco Oil Company (Exhibit 10(b) to Form 10-K for year ended December 31, 1988 of TEL Offshore Trust)


0-06910


10
(b)10
(c)*


Assignment and Assumption Agreement, dated November 17, 1988, between Tenneco Oil Company and TOC-Gulf of Mexico Inc. (Exhibit 10(c) to Form 10-K for year ended December 31, 1988 of TEL Offshore
Trust)


0-06910


10
(c)10
(d)*


Gas Purchase and Sales Agreement Effective September 1, 1993 between Tennessee Gas Pipeline Company and Chevron U.S.A. Production Company (Exhibit 10(d) to Form 10-K for year ended December 31, 1993
of TEL Offshore Trust)


0-06910


10
(d)31



Certification furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 200232



Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


23

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

TEL OFFSHORE TRUSTBy:

The Bank of New York Mellon Trust
    Company, N.A.,
Corporate TrusteeBy:

/s/ MIKE ULRICH Mike UlrichVice PresidentDate: November 13, 2008


The
Registrant, TEL Offshore Trust, has no principal executive officer, principal financial officer, board of directors or persons performing similar functions. Accordingly, no
additional signatures are available and none have been provided.

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